[Federal Register Volume 76, Number 177 (Tuesday, September 13, 2011)]
[Notices]
[Pages 56455-56458]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-23305]


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FEDERAL TRADE COMMISSION

[File No. 111 0103]


DaVita, Inc.; Analysis of Agreement Containing Consent Orders To 
Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed Consent Agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before October 5, 2011.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``DaVita, Inc., File No. 
111 0103'' on your comment, and file your

[[Page 56456]]

comment online at https://ftcpublic.commentworks.com/ftc/davitaconsent, 
by following the instructions on the Web-based form. If you prefer to 
file your comment on paper, mail or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Room H-113 (Annex D), 600 Pennsylvania Avenue, NW., Washington, DC 
20580.

FOR FURTHER INFORMATION CONTACT: Lisa D. DeMarchi Sleigh (202-326-
2535), FTC, Bureau of Competition, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 the 
Commission Rules of Practice, 16 CFR 2.34, notice is hereby given that 
the above-captioned consent agreement containing a consent order to 
cease and desist, having been filed with and accepted, subject to final 
approval, by the Commission, has been placed on the public record for a 
period of thirty (30) days. The following Analysis to Aid Public 
Comment describes the terms of the consent agreement, and the 
allegations in the complaint. An electronic copy of the full text of 
the consent agreement package can be obtained from the FTC Home Page 
(for September 2, 2011), on the World Wide Web, at http://www.ftc.gov/os/actions.shtm. A paper copy can be obtained from the FTC Public 
Reference Room, Room 130-H, 600 Pennsylvania Avenue, NW., Washington, 
DC 20580, either in person or by calling (202) 326-2222.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before October 5, 2011. 
Write ``DaVita, Inc., File No. 111 0103'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which is obtained from any person and which is privileged or 
confidential,'' as provided in Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do 
not include competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/davitaconsent by following the instructions on the Web-based form. 
If this Notice appears at http://www.regulations.gov/#!home, you also 
may file a comment through that Web site.
    If you file your comment on paper, write ``DaVita, Inc., File No. 
111 0103'' on your comment and on the envelope, and mail or deliver it 
to the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue, NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at http://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before October 5, 2011. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order to Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Orders (``Consent 
Agreement'') from DaVita Inc. (``DaVita''). The purpose of the Consent 
Agreement is to remedy the anticompetitive effects resulting from 
DaVita's purchase of CDSI I Holding Company, Inc. (``DSI''). Under the 
terms of the Consent Agreement, DaVita is required to divest 28 
dialysis clinics and terminate one management contract in 22 markets 
across the United States.
    The Consent Agreement has been placed on the public record for 30 
days to solicit comments from interested persons. Comments received 
during this period will become part of the public record. After 30 
days, the Commission will again review the Consent Agreement and the 
comments received, and will decide whether it should withdraw from the 
Consent Agreement or make it final.
    Pursuant to an agreement dated February 4, 2011, DaVita proposes to 
acquire DSI for approximately $689 million. The Commission's complaint 
alleges that the proposed acquisition, if consummated, would violate 
Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and Section 5 
of the Federal Trade Commission Act, as amended, 15 U.S.C. 45, by 
lessening competition for the provision of outpatient dialysis services 
in 22 markets.

The Parties

    Headquartered in Denver, Colorado, DaVita is the second largest 
provider of outpatient dialysis services in the United States. DaVita 
operates 1,612 outpatient dialysis clinics in 42 states and the 
District of Columbia at which approximately 125,000 end stage renal 
disease (``ESRD'') patients receive treatment. In 2010 DaVita's 
revenues were approximately $7.63 billion.
    DSI, headquartered in Nashville, Tennessee, is a privately held 
company and the fifth largest provider of outpatient dialysis services 
in the United States. DSI operates 106 dialysis centers, providing 
dialysis services to approximately 8,000 patients in 23 states.

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Outpatient Dialysis Services

    Outpatient dialysis services is the appropriate relevant product 
market in which to assess the effects of the proposed transaction. For 
patients suffering from ESRD, dialysis treatments are a life-sustaining 
therapy that replaces the function of the kidneys by removing toxins 
and excess fluid from the blood. Most ESRD patients receive dialysis 
treatments three times per week in sessions lasting between three and 
five hours. Kidney transplantation is the only alternative to dialysis 
for ESRD patients. However, the wait-time for donor kidneys--during 
which ESRD patients must receive dialysis treatments--can exceed five 
years. Additionally, many ESRD patients are not viable transplant 
candidates. As a result, many ESRD patients have no alternative to 
ongoing dialysis treatments.
    The relevant geographic markets for the provision of dialysis 
services are local in nature. They are limited by the distance ESRD 
patients are willing and/or able to travel to receive dialysis 
treatments. Most ESRD patients are quite ill and suffer from multiple 
health problems. As such, it is difficult for ESRD patients to travel 
long distances for dialysis treatment. Generally, ESRD patients are 
unwilling and/or unable to travel further than 30 miles or 30 minutes 
to receive dialysis treatments, depending on traffic patterns, local 
geography, and the patient's proximity to the nearest center. As a 
result, competition among dialysis clinics occurs at a local level, 
corresponding to metropolitan areas or subsets thereof.
    Entry into the outpatient dialysis services markets addressed by 
the Consent Agreement on a level sufficient to deter or counteract the 
likely anticompetitive effects of the proposed transaction is not 
likely to occur in a timely manner. The primary barrier to entry is the 
difficulty associated with locating nephrologists with established 
patient pools to serve as medical directors. By law, each dialysis 
clinic must have a nephrologist medical director. As a practical 
matter, medical directors are essential to the success of a clinic 
because they are the primary source of referrals. The lack of available 
nephrologists with an established referral stream is a significant 
barrier to entry into each of the relevant markets. Beyond that, entry 
is also inhibited where certain attributes (such as a rapidly growing 
ESRD population, a favorable regulatory environment, average or below 
nursing and labor costs, and a low penetration of managed care) are not 
present, as is the case in many of the geographic markets identified in 
the Commission's complaint.
    Each of the geographic markets addressed by the Consent Agreement 
is highly concentrated. The proposed acquisition represents a merger to 
monopoly in one market and would cause the number of providers to drop 
from three to two in fifteen other markets. Additionally, concentration 
increases significantly in the remaining six markets addressed by the 
Consent Agreement. In each of these markets, the post-acquisition HHI 
level exceeds 3,500, and the change in HHI is more than 170. The high 
post-acquisition concentration levels, along with the elimination of 
DaVita and DSI's head-to-head competition in these markets, indicates 
that the combined firm would be able to exercise unilateral market 
power. The evidence shows that health insurance companies and other 
private payors who pay for dialysis services used by their members 
benefit from direct competition between DaVita and DSI when negotiating 
rates charged by dialysis providers. As a result, the proposed 
combination likely would result in higher prices and diminished service 
and quality for outpatient dialysis services in many geographic 
markets.

The Consent Agreement

    The Consent Agreement effectively remedies the proposed 
acquisition's anticompetitive effects in 22 markets where both DaVita 
and DSI operate dialysis clinics by requiring DaVita to divest--prior 
to acquiring DSI--29 outpatient dialysis clinics to Dialysis Newco, 
Inc., a corporation formed by Frazier Healthcare and New Enterprise 
Associates (``Frazier/NEA'').
    As part of these divestitures, DaVita is required to obtain the 
agreement of the medical directors affiliated with the divested clinics 
to continue providing physician services after the transfer of 
ownership to Frazier/NEA. Similarly, the Consent Agreement requires 
DaVita to obtain the consent of all lessors necessary to assign the 
leases for the real property associated with the divested clinics to 
Frazier/NEA. These provisions ensure that Frazier/NEA will have the 
assets necessary to operate the divested clinics in a competitive 
manner.
    The Consent Agreement contains several additional provisions 
designed to ensure that the divestitures are successful. First, the 
Consent Agreement provides Frazier/NEA with the opportunity to 
interview and hire employees affiliated with the divested clinics and 
prevents DaVita from offering these employees incentives to decline 
Frazier/NEA's offer of employment. This will ensure that Frazier/NEA 
has access to patient care and supervisory staff who are familiar with 
the clinics' patients and the local physicians. Second, the Consent 
Agreement prevents DaVita from contracting with the medical directors 
(or their practice groups) affiliated with the divested clinics for 
three years. This provides Frazier/NEA with sufficient time to build 
goodwill and a working relationship with its medical directors before 
DaVita can attempt to capitalize on its prior relationships in 
soliciting their services. Third, to ensure continuity of patient care 
and records as Frazier/NEA implements its quality care, billing, and 
supply systems, the Consent Agreement allows DaVita to provide 
transition services for a period of 12 months. Firewalls and 
confidentiality agreements have been established to ensure that 
competitively sensitive information is not exchanged. Fourth, the 
Consent Agreement requires DaVita to provide Frazier/NEA with a license 
to use DSI's policies, procedures, and medical protocols, as well as 
the option to obtain DaVita's medical protocols, which will further 
enhance Frazier/NEA's ability to provide continuity of care to 
patients. Finally, the Consent Agreement requires DaVita to provide 
prior notice to the Commission of its planned acquisitions of dialysis 
clinics located in the 22 markets addressed by the Consent Agreement. 
This provision ensures that subsequent acquisitions do not adversely 
impact competition in the markets at issue and undermine the remedial 
goals of the proposed order.
    The Commission is satisfied that Frazier/NEA is a qualified 
acquirer of the divested assets. Dialysis Newco, Inc. is a newly-formed 
company whose management has experience operating, acquiring, 
integrating, and developing outpatient dialysis clinics. The company 
has received a substantial equity investment from Frazier, a firm with 
a dedicated focus on healthcare, and NEA, the world's largest venture 
capital firm with over $10.5 billion under management.
    The Commission has appointed Richard Shermer of R. Shermer & Co. as 
an Interim Monitor to oversee the transition service agreements, and 
the implementation of, and compliance with, the Consent Agreement. Mr. 
Shermer assists client companies undergoing regulator-mandated 
ownership transitions, including experience with transitions of 
outpatient dialysis clinics.

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    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and it is not intended to constitute an official 
interpretation of the proposed Decision and Order or the Order to 
Maintain Assets, or to modify their terms in any way.

    By direction of the Commission.
Donald S. Clark
Secretary.
[FR Doc. 2011-23305 Filed 9-12-11; 8:45 am]
BILLING CODE 6750-01-P